Thursday, November 22, 2012

Deere Fiscal Quarter 4 Earnings

       Deere reported fiscal 4th quarter earnings yesterday, that missed on profit and EPS. Revenue grew 14 percent to 9.79 billion with net income of 687.6 million representing 2.7 percent growth and EPS of 1.75 which missed consensus of 1.88 a 7.4 percent miss . As a result the stock dropped $3.16 or 3.67 percent. The 14 percentage point gain in revenue was offset by a 15 percent increase in costs of sales attributable to rising overhead and plant expansion as well as a 15.7 percent increase in research and development spending. Additionally, the company had a write down of 33 million on the water/irrigation aspect of their business which the company attributed to trying to integrate the water business into the agriculture and turf segment. All of this contributed to reducing Deere's profit to 2.7 percent. For the current quarter, agriculture sales rose 16 percent, and the forestry and construction segments had 7 percent sales growth. Looking forward, expect Europe to be the biggest negative and Latin America being the most positive. Deere expects sales growth of 10 percent in Latin America, flat to negative 5 percent growth in Europe, and flat sales growth in the US in 2013. The zero growth in the United States and Canada is being blamed on drought related effects on dairy and livestock farmers. The decline in Europe is due to the overall economic situation in addition to wet seasons especially in the UK which resulted in a lower harvest for the year.
      Going forward, costs especially research and development and overhead should increase as a result of opening two new plants in South America and hiring employees to fill positions. However benefits outweigh costs especially going into quarter one of next year. Deere is expecting sales to increase by 10 percent next quarter which is well above what analysts expected of 3 percent. Additionally, early next year is looking very productive when you look at early orders. Combines have sold out for quarters one and two, sprayers have almost been sold out for the entire year, and high horsepower tractors have sold out for the spring. This is an early indication that at the very least, fiscal quarter one is looking to improvement. Additionally, a continued housing market in the United States is positive for Deere's smaller construction and forestry segments. The construction segment should benefit from an improving housing market, and increased demand for lumber as a result should help Deere's forestry segment going forward. As a result I think that we should hold Deere at least through early next year as signs point to a strong quarter 1.

No comments: